On
the evening of October 24, 1978, President Jimmy Carter sat up straight
behind the Resolute desk in the Oval Office, interlocked his hands, and
began reading from the remarks laid out in front of him. “I want to
have a frank talk with you tonight about our most serious domestic
problem,” Carter told the camera. “That problem is inflation.”
The
largest single cause of inflation was monopolistic control over the
flow of oil, but Carter saw no palatable options for breaking up the
OPEC cartel anytime soon. Nor was he yet desperate enough to accede to
Republican demands for deep cuts in federal spending, because that
agenda would outrage the liberal base.
So
Carter played another card: Blame inflation on government bureaucrats.
The president told the nation that his administration was “cutting away
the regulatory thicket that has grown up around us and giving our
competitive free enterprise system a chance to grow up in its place.” As
a first step, he signed a bill that day stripping the federal
government of its power to regulate airline fares and routes. Carter
would soon follow up by signing bills that deregulated railroads and
trucks, and that set in motion the deregulation of the financial sector
as well.
Most
Republicans applauded these moves, for obvious reasons, but Carter also
got support from important Democrats like Ted Kennedy and Ralph Nader.
Their overarching theory was that federal regulatory agencies had become
captured by powerful corporate interests and that if government would
just get out of the way, market competition would lead to greater
efficiency and therefore to lower prices for consumers.
Today, we are paying a big price for that misguided conclusion, as Phillip Longman details in the cover story of the upcoming July/August issue of the Washington Monthly.
Democrats and Republicans cooperated over the next four decades in
dismantling much of the regulatory apparatus and antitrust enforcement
that since the New Deal—and even before—had checked monopolies and
promoted fair competition throughout the economy. In some cases, this
radical policy change did initially help bring down prices. But over the
past 40 years, the primary effect has been an enormous growth in
corporate monopolies and financialization that set us up for today’s
inflation.
Under
the new “neoliberal” order, corporations attempted to maximize
“shareholder value” by buying out their competitors, downsizing plant
and equipment, shrinking workforces and inventories, and using brittle,
overstretched supply chains to outsource production to low-cost, mostly
Asian countries. As a result, when shocks like the pandemic and the war
in Ukraine came along, the industrial system had no spare capacity and
became riddled with choke points, setting off a frenzy of price gouging
that doesn’t self-correct.
The
clearest evidence of monopoly’s culpability in today’s inflation is
that corporate profits are growing far faster than corporate expenses.
Indeed, surging profits are the single-largest cause of inflation,
accounting for more than half of the rise of prices, according to
a report by the Economic Policy Institute. Longman illustrates the
business practices behind this statistic by giving example after example
of monopolistic corporations, including railroads, airlines, and rental
car companies, maximizing shareholder returns by purposely reducing
their capacity below the levels needed to meet demand, and then using
the resulting shortages to jack up prices.
Longman
rebuts those who say that corporate concentration cannot be a major
cause of today’s inflation since the trend has been building since the
1980s, while inflation has surged recently. He notes that in many
sectors where corporate concentration emerged early, such as hospital
markets, monopoly pricing has been causing raging inflation for decades.
He also points out that, going back to the days of John D. Rockefeller,
a standard monopoly play has been to drive competitors out of business
by selling at below cost and then using the resulting gain in market
share to jack up prices. This was the business strategy used by Jeff
Bezos, for example, and its success now gives him the power to charge
monopoly prices to merchants who need access to Amazon’s sales
platform.
Today,
Joe Biden faces much the same threat as Jimmy Carter did, including the
prospect that the Federal Reserve will destroy his chances for a second
term by engineering a recession to break the inflationary spiral. If
Biden is to escape Carter’s fate, Longman argues, he needs to avoid
being led astray by the very same economists whose flawed models and
ideologies created the background conditions for today’s inflation.
Instead, Biden must do a better job of proving that he has a plan for
addressing inflation’s root cause: abusive, unchecked corporate power.
Read the story—a sneak peek from the Washington Monthly’s July/August print issue—here.